Only now emerging from a bankruptcy filing three years ago, the world's second-largest airline--United Airlines--is betting that one element of its strategy for future prosperity will be a successful avionics troubleshooting and repair business. United Airlines (UAL) plans to focus on three areas in its maintenance, repair and overhaul (MRO) business: Avionics and components, engines and line maintenance.
The MRO profit center is headquartered at the United Services Center, located at its San Francisco Maintenance Base, at one time the largest such operation in the world.
A division of United Airlines, United Services operates the MRO facility and offers line maintenance for its own and other airline fleets at San Francisco and 54 other locations throughout the world. United expects to complete all required milestones to emerge from Chapter 11 status in the first quarter of 2006.
In seeking outside customers while at the same time outsourcing portions of its MRO business, United is following paths set by other major carriers. But unlike them, United will exploit its sizable capital investment at its San Francisco facility to not only draw in new business, but also "repatriate" business it previously had outsourced.
To get a firsthand look at how this strategy is working, Avionics Magazine visited and toured the maintenance center at the San Francisco airport and talked to its leaders.
A carefully executed exit strategy from bandruptcy has allowed United to retreat from areas where it was not competitive.
"As we've gone through bankruptcy, we've had the flexibility under (renegotiated) labor contracts to exit some non-competitive work, and that allows us to focus on our areas of excellence," says Greg Hall, senior vice president of maintenance and engineering for United. "In certain businesses we just couldn't compete--from a labor rate or from a materials usage perspective."
As United exited from those businesses, it concentrated on the three areas it knew best. "Those three areas are starting to yield very good results for us," Hall says. "And as we create capacity, we are selling that capacity to people outside of the United family."
United Airlines, with its 451-aircraft "mainline" fleet, probably will always be the MRO organization's biggest customer, Hall maintains. The budget for United Airlines work is $1.6 billion annually, split about evenly between materials and labor. (United does not maintain the United Express regional fleet.)
But outside business is growing faster than its internal business. United Services' annual revenue from outside customers has grown from $100 million two years ago to close to $180 million this year and is projected to reach $257 million in 2006."As we find ways to do something better than a subcontractor United currently uses, we will save the airline money by bringing back business that United used to accomplish," Hall says. "But we have to create the capacity to enable us to beat the competition at the pricing they are giving United."
At the same time it is adding business, United is outsourcing its heavy maintenance. As it went through the bankruptcy process, it cut its schedules and fleet, and the need for three heavy maintenance bases diminished. United Services eliminated its bases at Oakland and Indianapolis, keeping the San Francisco facility.
"This was the right choice for us, as a lot of the capital investment in United Services is here in San Francisco, particularly in the three areas [of specialization]," Hall explains. Also, having an on-line location in San Francisco, a major hub for the airline's Asian routes, allows for rapid widebody shipment of components to the Far East. United Services performs "light C-checks" on its aircraft at the base, at intervals of 12 to 18 months.
Korean Airlines performs heavy maintenance checks on United's 747s in Pusan. And United is moving its Boeing 777 work to AMECO, a joint venture of Lufthansa and Air China in Beijing. This arrangement has a reciprocal advantage.
"It's very good for United from a cost perspective, because we participate with Air China and do quite a bit of their engine work--particularly on Pratt & Whitney products--at the [San Francisco] service center," Hall says. TIMCO does heavy checks on United Airbus A320s and Boeing 757 and 767s at Greensboro, N.C., and in Lake City, Fla. And AAR, which moved into United's vacated Indianapolis facility, performs UAL's B737 heavy checks.
"We have a big belief here that you can't do everything well," Hall says. "Quality, really, at United has never been an issue. An issue has been turn time, so we focus on that."
For example, he says, a light C-check on an A320 used to average 4.5 days. But through improvements made in processes such as "kitting" parts, and in training technicians, United has cut that time to 2.5 days. A new parts inventory system, using bar coding and radio frequency (RF) technology will allow an avionics technician, when he finishes repairing a component in the shop, to ship it directly to the bin that needs to be filled. It no longer sits on a shelf in a warehouse until the bin becomes empty. United also is testing a technology that will provide electronic manuals for the technician at the point of use and allow direct downloading of revision updates.
Cost cutting for some companies focuses on layoffs, Hall says. "But to United Services, [cost cutting] is continually improving the processes so you can lower your materials costs and make the highly skilled technicians we have more productive, so they are working more hours within their eight hours [shifts]."
Echoing this theme, Bill Norman, United Service's vice president of base maintenance, says, "What we are after is the systematic identification and elimination of waste in our process. And so we are applying a set of tools--founded in the Toyota [automotive] production system--often called Lean [manufacturing]."
New Lean ideas are reducing cycle time in wire harness buildup at the United facility, says Norman. "Feeder lines" have been created-- moving or co-locating some of the shop capability--so that the wire harness never has to leave the landing gear cell.
United management is working hard not only with its frontline employees but also with union leadership to buy into the plan, says Norman. "It is absolutely essential. We are co-leading the AMFA [Aircraft Mechanics Fraternal Association] local leadership and the management team, which meets every week. We believe that our best method to create stability is to be more competitive. And I believe AMFA shares that." If the plan is successful, United hopes to save the company close to $200 million by the end of 2007, according to Hall.
The Next Level
One cost cutting initiative in avionics involves moving to Level 3 (or piece part) repair on a number of subcomponents. This is particularly vital, as a major portion of United`s fleet is coming off of warranty--its 52 B777s and 152 A319/320s. "Many of these products have been sent back to the OEMs [original equipment manufacturers] for free-of-charge or lower-cost repair," Norman says. "So with these planes coming off warranty, we clearly need to develop our capabilities."
United, for example, is deploying tools and training technicians to repair circuit boards instead of sending them out for repair or returning them to the OEM. All avionics shop technicians are receiving up to two weeks of upgrade training in soldering skills from a cadre of technicians sent to a special training school. Their proficiency must exceed Mil (military) standards.
"The problem with a lot of suppliers [is that] they don't repair," says Ron Bracken, avionics manager at United's Maintenance Operations Center. "It's easier for them to replace the whole card--and the charge is outrageous." Using their soldering techniques and a special machine, United technicians now can replace a surface mount device (diode) from a PC board without sending it out.
"We're pulling work back," Bracken says. It is more economical for us to invest not only in equipment but in the technician training." Other cost reduction efforts involve increasing reliability. Systems on newer aircraft are more reliable, which translates to fewer spares held in inventory and lower cycle times.
"Things still break, but some of the reliability is built into the product by our own engineers," Hall says. "We have an FAA-approved reliability program that we rely on heavily. We can make adjustments to our programs--maybe you pull it [a component] off earlier or you do something different in the shop to build in longer reliability."
Reducing no fault founds (NFFs) is also important to the carrier (see August 2005, page 22). United's program involves "a little training and a lot of tracking," Hall says. The company monitors the units with the highest rate of NFF and teaches technicians that replacing a particular component may not be a long-term fix for whatever the problem is.
One way to cut costs for the airline and its customers is using PMA (parts manufacturing authority) FAA-approved parts for avionics and other repairs, instead of going to the OEMs. A group in United Services' inventory organization works with the engineering personnel to define the requirements and then goes to outside vendors to produce them. "You can find people that can do that in the avionics field as well as in engines, mechanisms and structure," Norman says.
Using PMA parts saved UAL $22.6 million in 2004. Heico Aerospace Corp., Hollywood, Fla., a component-repair company that United has partnered with, provides a number of PMA parts.
In its first step towards partnering in the MRO business, United in August announced relationships with four fixed base operators (FBOs) to expand its line maintenance network:
JET Aircraft Maintenance,
Jett Care and
Pegasus Aircraft Maintenance.
"We expect that line maintenance network to grow," says Norman. "There's a lot of interest in people partnering with us to provide a total service offering."
Engine repair and overhaul is the largest revenue producer for United Services, whose work includes a contract with Boeing to overhaul the Pratt & Whitney engines on the U.S. Air Force's C-17 transport aircraft. But avionics is a key revenue stream. And while United sees some competition from other airlines, such as Lufthansa and British Airways, which have set up their own MRO organizations, OEMs are the main competitors.
"This is particularly true of avionics--our largest competition is with the OEMs," Norman says. "We think we have a huge opportunity here to compete. Some things they--Rockwell Collins, Honeywell, Thales--do better than we do, so they do some work for us. We do some work for others, trying to lower their costs."
Avionics repair and overhaul at the United Center uses 50,000 square feet (4,645 square meters) of space on two floors of the complex, including six work centers. And as Lean manufacturing is implemented, there will be 22 cells. One-hundred and seventy-two avionics technicians work in three shifts.
United's sizable capital investment in avionics test and repair equipment--said to be in the $100-million range, with $25 million invested in the past 10 years--is a cornerstone of the company's strategy to leverage its capabilities. With a $45-million annual operating budget, United's avionics shops handle some 60,000 units (1,500 different types) a year, and less than 10 percent of these are sent back to the OEMs.
"When it bought the Boeing 777 fleet (United was the launch customer), prior to the first airplane arriving, UAL invested $16 million in 777 test equipment," Bracken says. "Why make such an investment? Because the first thing that probably comes off the aircraft is a black box. And on a 777, if it were an ADIRU [air data inertial reference unit], that was an $800,000 [original price] box," he relates.
"Having that capability here allowed us to avoid buying more inventory than we needed. If we had to rely on the OEM, the component would have to be removed and cycled to the OEM with long lead times.
"This cycle time is critical to the operational needs of the airline. By doing it ourselves, we have a much shorter turnaround time and require less inventory."
United's 777 automatic test equipment (ATE) allows technicians to test multiple types of black boxes at one station, using different adapters. One piece of equipment, called a goniometer, tests liquid crystal displays, such as the 777's Honeywell display units, for screen brightness and angular viewing.
Another integrated test system, an ITS-701 built by Rockwell Collins, tests only Collins components. "Because we have so much Collins equipment on our fleets--up to 30 percent [of the avionics]--we are able to buy their dedicated ATE," Bracken says. United has three ITS-701s, used primarily to test flight control computers for Boeing 757, 767, 747-400 and 777 aircraft.
For its Airbus fleet, United Services uses an EADS (formerly Aerospatiale) multipurpose ATE unit that tests products from different manufacturers. It can be configured for the programs and the airborne units United wants to test on that station. United also has two ATEs built by Boeing's electronic support division (now part of BAE) that support Boeing-built control surfaces electronics. The shops also boast an RTF 1000 and an IRIS 2000. There are five ATEC-6s (automated testing electronic consoles) that test display units and other components and two older-series ATEC-5000s. A third ATEC is dedicated to Thales equipment.
United's PRISM computerized scheduling system determines the availability of parts in the system and helps prioritize the work. "At the beginning of the shift, the lead technicians will go to PRISM, see where the demand [for work] is, pull those parts off the shelf and start working," Bracken explains. The airline also keeps a database, called CIDR (component identification and reliability), which keeps a record of all work done on a component, its removal rate and which technicians have worked on it.
United's instrument shop, where flight instruments are tested and calibrated, is called a Class 100,000 clean room. And the standards lab is labeled a Class 10,000 clean room. That is where all test equipment, especially that involved in airspeed and altitude instrument calculations, is checked and certified to National Institute of Standards Technology (NIST) requirements.
One shop area is dedicated to flight data recorders and cockpit voice recorders. The San Francisco facility also has a radar cell, where C-band and X-band airborne radars are tested and repaired, as well as an extensive in-flight entertainment (IFE) shop, where seat electronic boxes and monitors are repaired. And in connection with its engine work, United Services handles electronic engine controls (EECs) involving Pratt & Whitney and Hamilton Sundstrand. It even repairs aircraft batteries, replacing cells and sensors.
HEICO Aerospace Corp., the Hollywood, Fla., provider of PMA (parts manufacturing authority) components for United Airlines (UAL), also partners with the airline to provide avionics repair business to United Services in San Francisco. (HEICO, which is 20 percent owned by Lufthansa Technik AG, has 800 employees with $50 million in annual sales.)
The company's Inertial Aerospace Services division, near Cleveland, concentrates on repairing inertial guidance units for airline customers. "On the PMA side, United is a customer," says Jeff Williams, general manager of the Cleveland facility. "They buy PMA parts from us--generally for their own maintenance but also for third-party maintenance.
"On the avionics side, we partnered with United in March 2004 to find work for them in certain areas--such as cockpit display assemblies--that we don't do, and basically subcontract out the work to them. So we send those components to United for repair, final test and tagging for return to service."
With its core competency in inertial instruments, HEICO doesn't have enough business in cockpit displays to warrant a big investment in equipment. "We have a partner that has that capability," Williams says.
HEICO markets the service and brings in the components for a preliminary inspection to make sure the units are intact, and then sends them to United. HEICO also provides the display glass assemblies for liquid crystal displays, when needed, to United, which repairs the units in San Francisco and returns them to HEICO.
HEICO developed a repair for the glass that was approved by an FAA DER (designated engineering representative), saving airlines major modifications to glass deemed not repairable by the original equipment manufacturer (OEM).
"In the process, we joined with United to sell this repair--and we also have a major customer in American Airlines, which also uses our glass," says Nicholas Wright, director of marketing for HEICO Inertial.
Rob Baumann, president of HEICO Parts Group in Florida, calls the relationship with United "phenomenal," on both the PMA front and the repair front. "Repair work they don't do--they send to us. Things we don't have capability for but have contracts for, we send to them," he says. United has been helpful to his company in many parts of the world and, on the cost side, HEICO has been good for United, he says.
While initially concentrating on PMA engine components, HEICO three years ago diversified into other components, including engine-related assessories along with avionics. "Avionics is a growing piece of our business now," Baumann says.